QUESTION 2 Sara finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Sara went back to wearing her old pair and stashed away the new pair. When asked by her boss, Emin why does she not simply give away the new pair, she said: "But I paid so much for them." Sara's behavior A. is rational: she should not discard a valuable item. B. is rational because the more you pay for an item the more valuable it is.

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.12P
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QUESTION 2
Sara finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she
discovered that the shoes were uncomfortable. Sara went back to wearing her old pair and stashed away the new
pair. When asked by her boss, Emin why does she not simply give away the new pair, she said: "But I paid so
much for them." Sara's behavior
OA. is rational: she should not discard a valuable item.
B. is rational because the more you pay for an item the more valuable it is.
C. ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give
them away or not.
D. supports the endowment effect which states that ownership of an item makes it more valuable.
Transcribed Image Text:QUESTION 2 Sara finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Sara went back to wearing her old pair and stashed away the new pair. When asked by her boss, Emin why does she not simply give away the new pair, she said: "But I paid so much for them." Sara's behavior OA. is rational: she should not discard a valuable item. B. is rational because the more you pay for an item the more valuable it is. C. ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give them away or not. D. supports the endowment effect which states that ownership of an item makes it more valuable.
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